Sonap Petroleum (South Africa) (Pty) Ltd v Pappadogianis Case Summary

Background of the Case

• The case is before the Supreme Court of South Africa, Appellate Division.
• Case number is 483/90.
• The appellant is SONAP Petroleum (South Africa) (Pty) Ltd (formerly known as SONAREP (South Africa) (Pty) Ltd).
• The respondent is Haralabos Pappadogianis.
• The judges presiding are Joubert, Botha JJA, and Harms AJA.
• The date heard was 12 March 1992, and the date delivered was 30 March 1992.

Facts of the Case

• The appellant is a supplier of petroleum products and finances property owners to erect garages and petrol stations.
• The appellant leases the completed garage from the owner and sublets it to an operator who sells its products.
• The appellant registers a mortgage bond over the property to secure the loan to the owner.
• The respondent owns a property in Randfontein.
• On 18 February 1975, the respondent leased the property to the appellant (then Sonarep) for 20 years via a notarial deed of principal lease.
• The lease was registered on 21 May 1975.
• The preamble recorded the respondent's ownership, the impending erection of a garage, and the appellant's agreement to lease the property.
• The respondent would erect the garage using funds lent by the appellant.
• The premises would be used as a garage and related services.
• The fixed rent was R770.00 per month.
• The tenant (appellant) had the right to sublet and the first right of refusal to purchase the premises.

Clause 4 of the Lease Agreement

• Clause 4 states the lease is for a fixed period of 20 years, commencing on a date specified in a certificate issued by SONAREP, indicating the premises are substantially ready and complete.

Other Relevant Clauses

• Clause 16 grants the appellant the right to cancel the lease if the premises are totally destroyed. If not cancelled, the period of deprivation of beneficial occupation would be added to the 20-year term.
• Clause 17 allows termination if the sale of the appellant's products is prohibited or restricted, or in the event of expropriation.
• Clause 19 provides a right to terminate upon 60 days' notice in the event of vis maior.

Mortgage Bond Details

• The mortgage bond securing the loan was registered on 14 May 1975.
• It recorded a loan of R185,000.00 from the appellant to the respondent at 5% interest per annum.
• Capital and interest were to be repaid in 240 consecutive installments from the date of completion.
• The full balance of capital was repayable if the lease was cancelled per clauses 3, 16, 17, and 19, or if terminated otherwise than by effluxion of the fixed period as defined in clause 4.
• The provisions of the notarial lease and mortgage bond were interrelated and interdependent.

The Addendum to the Lease

• The appellant failed to issue a certificate relating to the lease's inception date.
• In 1986, Mr. Cronje, an employee, determined the date as 1 December 1974.
• Instead of issuing a certificate, an attorney prepared a notarial addendum to the lease.
• The respondent and the appellant's managing director signed the addendum, and it was registered in early 1987.
• The addendum:
  • Deleted clause 4 of the main lease and substituted it with a clause fixing the commencement date as 1st December 1974 and reducing the lease term to 15 years.
  • Stated that all other terms and conditions of the main lease remained unaltered.
• The reduction of the lease term from 20 to 15 years was an unexplained mistake not detected until approximately September 1987.
• The respondent insisted no mistake had occurred, leading to litigation.

Litigation

• The appellant claimed rectification of the addendum, seeking to replace the 15-year term with 20 years, or alternatively, a declaration that the addendum was void due to mistake.
• The court a quo (J H Coetzee J) dismissed the claim with costs but granted leave to appeal.
• The trial judge's conclusions:
  • Rectification failed because the appellant did not prove a common continuing intention to retain the 20-year period.
  • The appellant's mistake was not iustus because it was due to the carelessness of its employees.
  • The appellant did not prove the respondent knew or should have known of the unilateral mistake.

Respondent's Case and Trial Judge's Findings

• The respondent claimed an oral agreement with Potgieter (for the appellant) in 1986 to amend the lease to 15 years, which was proven false.
• The respondent claimed a messenger delivered the amending documents, representing a new lease.
• He read the documents, noticed the reduction in term, and discussed the inception date with his attorney, but not the reduction in term.
• He testified that he believed the reduction was intentional.
• The trial judge believed the respondent was lying about noticing the reduction but made no finding accordingly.
• It is probable that the respondent read the document and discussed it with his attorney, given the importance of the lease term and bond repayments.
• The appellant's counsel attempted to get the respondent to admit he realized a mistake had occurred, but respondent's counsel intervened.

Legal Issues

• Rectification and unilateral mistake are mutually exclusive concepts.
• Rectification requires a common intention, while unilateral mistake implies the absence of a common intention.
• The claim for rectification must be considered first.
• The appellant argued the addendum aimed to fix the commencement date, with no intention to amend the lease period, and a common continuing intention to retain the original period.
• The respondent's intention in signing the document was to agree to the reduction; therefore, rectification cannot follow because there was no common intention not to amend.

Analysis of Mistake

• The appellant's mistake was in expressing its intention (Erklarungsirrtum).
• It mistakenly believed its declared intention conformed to its actual intention.
• The respondent's declared intention matched his actual intention.
• The dissensus resulted from the appellant's unilateral mistake.
• The law generally concerns itself with external manifestations of intent, not internal workings of the mind.
• In cases of alleged dissensus, the reliance theory is considered to determine whether a contract exists.

Iustus Error

• The court refers to two judgments addressing iustus error in the context of unilateral mistake.
• George v Fairmead (Pty) Ltd 1958 (2) SA 465 (A) 471 B - D: Fagan CJ stated that a mistake is justus when the party trying to resile is not to blame for leading the other party to believe he was binding himself. If the mistake is due to misrepresentation by the other party, the first party is not bound.
• National and Overseas Distributors Corporation (Pty) Ltd v Potato Board 1958 (2) SA 473 (A) 479 G - H: Schreiner JA stated that a party can set up their own mistake to escape liability, but in the absence of misrepresentation or knowledge of misapprehension, the scope for a defense of unilateral mistake is very narrow, and the mistake must be reasonable (justus) and pleaded.

The Decisive Question

• The decisive question is whether the party whose actual intention differed from the expressed common intention led the other party, as a reasonable man, to believe that his declared intention represented his actual intention.
• A three-fold inquiry is necessary:
  • Was there a misrepresentation as to one party's intention?
  • Who made that representation?
  • Was the other party misled thereby?
• The last question asks: was he actually misled, and would a reasonable man have been misled?

Fault Principle

• In Horty Investments (Pty) Ltd v Interior Acoustics (Pty) Ltd 1984 (3) SA 537 (W) G, Coetzee J stated that the fault principle looms large in determining whether an error is iustus.
• He held that a mistaken party cannot rely on the lack of true consensus if the mistake was due to his own fault.
• However, the court finds that the reliance on Estoppel may only bedevil the inquiry.
• The Chief Justice refers to blame in the sense that the party acted in a manner that would indicate his apparent intention was infact his true intention.

Application to the Present Case

• The appellant represented to the respondent that its intention was to reduce the period of the lease.
• The court must determine whether the misrepresentation had any effect and whether the respondent was misled.
• If the respondent realized (or should have realized) a possibility of mistake, he had a duty to speak and inquire whether the expressed offer was the intended offer.

Duty to Speak

• "Dolus malus kan ook zwijgen zijn, waar spreken plicht is" - "Bad faith can also be silence, where there is a duty to speak."
• There is no reason why someone should be bound by a declaration if the other should have known or suspected that the former likely did not mean what he said.
• A contract is voidable if "de wederpartij in verband met hetgeen zij omtrent de dwaling wist of behoorde te weten, de dwalende had behoren in te lichten" - "the other party, in connection with what they knew or should have known about the error, should have informed the erring party".
• Snapping up a bargain in knowledge of such a possibility would not be bona fide.

Analysis of Respondent's Actions

• The trial judge's impression was that the respondent had not read the document.
• The current judge has already held that there was no good reason to disbelieve the respondent on this aspect.
• The respondent believed there was a possibility of a mistake, and was not being truthful.
• The respondent is an experienced businessman aware of the appellant's profits from the sublease.
• He knew the addendum stated that all other terms of the lease were to remain unaffected.
• He knew the bond and lease were connected, and the addendum did not provide for accelerated loan payment.
• The question should then be asked: why did they lie if they had not discussed the possibility of a mistake?
• When asked why he thought the appellant intentionally wished to amend (as he had testified) the respondent gave spurious answers.
• His evidence had previously and falsely relied on an antecedent agreement.
• His answers in cross-examination indicated that it had crossed his mind that the reduction was done either intentionally or by error.
• The respondent was not misled by the appellant, but was alive to the possibility of a mistake and had a duty to speak and inquire.
• He did not do so but decided to snatch the bargain, which he could not do.
• There was no consensus, actual or imputed, on this issue.

Court Order

• The appeal is upheld with costs, including the costs of two counsel.
• The order of the court a quo is set aside, and the following order is substituted:
  • "It is declared that the Addendum to Notarial Deed of Lease K1335/1975L is void and of no effect insofar as it purports to reduce the period of the Main Lease from 20 to 15 years."
  • "Defendant is ordered to pay the costs of suit."